Wrap

Risk off, deflationary (except energy).

• Treasuries up,
• Crude up (>5%), practically all non-energy commodities down,
• equities down, NDX more than SPX,
• international equities fairly flat except the Turkish market, which was up strongly (even in USD terms),
• most currencies pretty flat, except NZD, which dropped 1.9% on measures to cool housing price boom,
• some EM currencies (BRE, TRY) very volatile as fallout from the Turkey situation reverberates through the world,
• bitcoin down 5%.

Main issue is the container ship blocking the Suez Canal.

Banks and Money

Banks are odd things. They look like companies: they have shareholders, equity capital; they make profits and pay dividends. They borrow and lend and receive interest. What they do not do is ever go bankrupt, or at least not in a way that the resolution of their insolvency causes any harm to small depositors. Their liabilities are, therefore, free of credit risk and hence are ‘as good as gold’ or, more importantly, as good as promissory notes issued by the Bank of England.

“Macro Musings,” the podcast, has many episodes which are concerned with this. The latest one is all about why the various functions of banks could, in fact, be unbundled, to remove the extravagant privilege which banks have in modern societies. Even though most of us have known about banks, and bank accounts, since we were very young, we probably haven’t ever stopped to really think about what it is that makes banks, as incorporated entities, special. The podcast is worth a listen, but it’s clear that it would be useful to read The Money Problem by Morgan Ricks first.

Given the huge role that money, and banking, play in all societies, but particularly the UK, it’s surprising that bank regulation is so lightly covered a topic, even in somewhat specialist papers like the FT.

Chart